My thoughts on watermarking....
I highly doubt a customer won't buy if you have the photos watermarked. That definitely does not stop my customers from buying and coming back.
But it depends on the kind...a watermark like 'THIS IS MINE' is not attractive. A small, discreet one included in a nice way, doesn't bother me at all. As David said above, it can help you with branding. I have come across a shop with a largish watermark at the bottom of all the photos. The way everything is done - the style of photos, the colors and watermark - all blend together and now I remember the shop.
Sometimes the link of your photo / listing is broken or not included so without a watermark no one would know where the work is coming from. It does not happen all the time, but something to bear in mind.
As for ranking...our listings on Etsy are grouped under 'Marketplace'. So if a buyer finds your items on Google, they will click on the link to find you among your competitors. Your item might not even be on the first page or first line, even though your link came up in Google search. So...how much difference will it make in terms of Google ranking if your Etsy photos are watermarked or not? Maybe it's different for your photos on other sites.
And yes, watermarks can be removed, but let those unethical people go through the trouble of doing that work, rather than us just offering our photos ready to use.
Some other things to consider....if you watermark your photos, you might not be included in Gift Guides. But do you see a huge benefit when you are included? You could also have your photos on low resolution...
It's really up to you what you want to do. They are your photos after all!